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IRFC IPO : Should You Subscribe?

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With markets flying and heavy FII liquidity, we are going to witness a new IPO season starting this year. In this IPO season, IRFC is set to hit the streets this Monday. IRFC was founded in 1986 aiming to finance the creation and acquisition of assets to be leased to the Indian Railways.

 

IRFC is the 1st PSU NBFC to be listed in public. The issue size is 4633 crores and the company has already raised 1390 crores from anchor investors ahead of the IPO. The money is raised from top domestic mutual funds (HDFC, Nippon Life, Invesco).

 

About IPO

 

IPO Starts ​​18 Jan

IPO closes ​​20 Jan

Price Band ​​25-26

Lot Size   ​​575

Listing Date ​​29 jan

 

 

Financials

 

In last 5 years, income of the company has grown at 13% CAGR. Profit after tax growth stands at 34% CAGR whereas total assets grew at 16% CAGR. Long term debt has grown at 26% CAGR mostly due to nature of business (it’s an NBFC company which borrows money to finance)w7AAAAAElFTkSuQmCC - The TradeLogsJlYSAQQQQAABBBBAAAEEEEAAAQQQQAABBAJF4P8BQrKQcervZYIAAAAASUVORK5CYII= - The TradeLog

 

Grey Market Price

 

IRFC unlisted shares are trading at a weak premium of 1.3 per share which translates to 4% above offer price.

 

Should You Subscribe

 

Given that the GMP is weak, the IPO is unlikely to give big listing gains. However, looking at its return ratios and the valuation, one can subscribe for long term gains. I won’t be subscribing to the issue due to these factors:

1. PSU (PSUs have underperformed very badly in past years)
2. NBFC (Lending businesses have risk due to high debt)
3. Weak GMP

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